This week, we look at how investors can measure and track their own performance.

Here’s the excerpt:

If you manage your own assets, knowing how
well you did — or didn’t do — is crucial to your success. To do this,
you need a reliable method to measure yourself. Some of you may
discover that it’s cheaper, more tax-efficient, to simply index; you
may ultimately generate better returns by avoiding stock selection and
market-timing altogether.

Like most people, you think you know what your
performance is. But I’ll bet you cannot tell me what your returns were
for the past one-, five- and 10-year periods. How did you do last month
and last quarter? How have you fared relative to the S&P 500, the Russell 2000 or the Dow?

If you cannot answer these questions, you know far less about your own performance than you thought you did.

The basic tool to help answer these questions is the spreadsheet. We start with an Excel template, and today we will review several ways by which you can evaluate your returns. You will be able to compare how well you are doing relative to the benchmarks over any time period you like (daily, weekly, monthly, quarterly, etc.)Download Excel template

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “Apprenticed Investor: “How My Doin?””

You have a column with dividend yield, but I do not see a set of columns that allow you to incorporate the actual dividends received into your calculations.
Nor do you use the total return of the S&P including dividends.

In a world where dividends , and dividend reinvestments are a significant component of total returns I would think you need to incorporate this into your calculations.

Most Investment funds average 8-10%/year return. A co-worker commented recently that 20% return is ‘kinda low’, and that he got far better returns managing his own affairs. What should I expect for returns on my investments? Am I missing out on an additional 10-15% by trusting a financial planner?

Maybe he forgot to account for contributions, like the Beardstown Ladies, whose ten-year numbers were 9%, not the 23% with which they spattered their book cover. Or maybe he did get 20%, but he’s taking on loads and loads of risk. Hard to tell. Maybe both.

To analyze returns, the spreadsheet with which I’d start would calculate monthly returns by modified Dietz method (rather than the classic version as here), then calculate both returns and variance, the latter a proxy for risk. Compare it to the benchmark for which you’re shooting, and you’ll start to have a clue how you did.

You can get a pretty close idea without having to fill out the spreadsheet, by looking at the calculation “Amount Return YTD” in Quicken. It shows a dollar total for your entire portfolio (market value change, plus cash income plus sale income minus dollars invested, all YTD). All you have to do is calculate the percentage of the total market value of your portfolio. The unbelieveable fly in the ointment is that Quicken does not include transactions after January 1. If such transactions are a small portion of your portfolio, you can reasonably ignore them and you have a decent seat-of-the-pants return number.

I totally disagree. You want to use these tools to LEARN something — not just guesstimate how well you are doing.

Consider these advantages:

Performance: Knowing how well you are doing — on both a relative and absolute basis — will help you determine if you need to make major or minor course corrections.

Asset Allocation: You can very easily see when a position becomes too large relative to the rest of the portfolio. If most of the asset percentages are between 1% to 5%, that one stock or fund that’s 14% really sticks out like a sore thumb. Recognizing this at least gives you the opportunity to decide if you want that much risk in a given stock.

It’s easy to see when your portfolio is being dominated by a given sector. In the 1990s, it was tech and telecom; these days, it seems to be energy and housing that are slowly taking over portfolios. There’s a reason you want balance, especially after an outsized move in an extended sector.

Data Mining (Strategy review): Price-to-earnings, P/E-to-growth, market cap, growth rate, beta, dividend yield. These are just some of the criteria you can keep track of. This allows you to determine what criteria are working best, just at a glance. Are high P/E and big beta stocks doing well? Or are low P/E stocks with good dividend ratios what’s working? Either way, that tells you something about your holdings — and the overall market as well. It also shows you where some tactical adjustments might be necessary.

Charts & Graphics: If a picture is worth a 1,000 words, then a spreadsheet must be worth a million: That’s because you can take any and all of the entered data and turn it into a pie chart or graphic.

Record Keeping: Your spreadsheet becomes a backup to your regular statements. Trust me when I tell you, this is often a lifesaver in a pinch. Your purchase price, date of buy, quantity and commissions all have tax implications. Keeping a spreadsheet creates a powerful record-keeping system, including cost basis. When some crucial brokerage statement turns up missing around tax time, your accountant will be relieved you have a back up (he can thank me then).

I don’t get it. If I know my return YTD as a percentage of my portfolio, and can compare that to the YTD return of the S&P, how is that not knowing my performance?

I have a 17-page Excel spreadsheet that I use for asset allocation. It is a totally different question than the overall return of the portfolio, which was all I was trying to address. I do not agree with your asset classes. They all look like U.S. large-cape securities to me. That’s not diversification in my book. Here is my allocation:

Category
%
Target Allocation

Total Corporate Bonds
0.0%

Total Municipal Bonds
14.0%

Subtotal, Int’l Debt, Emerging Markets
2.5%

Subtotal, Int’l Debt, Developed Markets
2.5%

Total International Debt
5.0%

Subtotal, US Large Cap Broad
10.0%

Subtotal, US Large Cap Value
4.0%

Total US Large Cap Equities
14.0%

Subtotal, US Small Cap Broad
3.0%

Subtotal, US Small Cap Value
3.0%

Total US Small Cap Equities
6.0%

Subtotal, Int’l Broad Market
6.5%

Subtotal, Int’l Mid Cap Market
6.5%

Subtotal, Int’l Emerging Markets
12.0%

Total International Equities
25.0%

Total Managed Timber
20.0%

Total Hedge Funds
6.0%

Total Commodities
7.0%

Total Cash & US Treasuries
3.0%

Total Portfolio
100.0%

I run a Quicken asset allocation report and type the numbers into my spreadsheet, which gives over/under amounts in dollars and percentages. This allows me to invest current income in whatever is most under-represented.

As for Data Mining, these elements are for stock pickers, which I am not.

Quicken provides all the record-keeping facilities you cite, and more.

Barry Ritholtz has a good article Apprenticed Investor: “How My Doin?” on his blog The Big Picture. Ritholtz encourages us to track of our investment performance so that we know if we are winning or losing. Moreover, he provides a…

Say Hello

About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

Quote of the Day

"We don’t see things as they are, we see them as we are." -Anais Nin

Sign Up For My Newsletter

Get subscriber only insights and news delivered by Barry every two weeks.